To phase out fossil fuels, the G7 must stop subsidising themMaría Mendiluce, CEO, We Mean Business Coalition
This article first appeared on Context.
The Group of Seven nations’ energy ministers agreed this week to accelerate the phase out of all fossil fuels as an essential step in our efforts to limit global temperature rise to 1.5°C.
To replace them with clean energy in the timescale required means immediately repurposing billions of dollars’ worth of fossil fuel subsidies that G7 nations still offer.
In 2021, G7 fossil fuel subsidies came to over $80 billion. Redirecting this capital towards scaling up renewables, increasing energy efficiency and supporting communities affected by this transition will put our climate goals within reach.
When heads of state meet at the G7 summit in Japan in May, laying out concrete plans to repurpose fossil fuel subsidies will be vital. Last year, the G7 leaders stated that fossil fuel subsidies are inconsistent with the goals of the Paris Agreement. They committed to report this year on the progress made in stopping those subsidies. The G7 energy ministers have now increased that ambition, aiming to eliminate the subsidies by 2025 or sooner. But they have not yet explained how.
Businesses need clarity on how and when fossil fuel subsidies will be repurposed. This will provide a clear signal to companies and their customers, which will accelerate the clean energy transition. For example, some people weighing up whether to install solar panels won’t do so if subsidies drive down high fossil fuel prices, even though clean energy is less volatile and more affordable overall.
Many areas are sorely in need of public funding and policies – from streamlining permitting processes for new renewable energy projects to improving grid and charging infrastructure. Tangible investments like these will unleash a wave of private capital towards clean energy.
The G7 nations can take confidence that they are not alone in wanting to accelerate the transition to clean energy. Over 80 countries called for a “phase-down” of fossil fuels at COP27 last year, and the G7 are expected to push for its inclusion in a global agreement at COP28.
Growing momentum in global clean energy makes this an optimal moment to invest at scale. Many alternatives to fossil fuels are already reaching tipping points of mass adoption, and costs are plummeting. Clean energy investments could boost global GDP by 4% by 2030.
Delaying climate action is already costing billions, and is expected to reduce global GDP by 14% or $23 trillion by 2050. Every day governments continue to subsidize fossil fuels, it impacts global temperature rise.
It is sound economics and smart risk management to repurpose this finance for clean energy. Doing so will significantly reduce the costs of damage from deadly flooding, raging forest fires and crippling droughts. If G7 leaders drag their heels, these costs will quickly escalate, driving up insurance premiums and destabilizing supply chains.
Currently, G7 subsidies are giving oil and gas companies confidence to expand exploration and production. Yet this rationale is being undercut every day as more and more companies choose cleaner alternatives.
Investments in renewable energy, electrification and energy efficiency are now matching investments in fossil fuels. However, by 2030 we need nine times more investment in clean energy than fossil fuels to reach net zero by 2050.
The more than 10,000 companies we support are working to cut their emissions, but can only play their full part in the phase out of fossil fuels through widespread access to clean energy across their operations and supply chains. Companies need G7 leaders to transition faster – because it is better for business and the climate.
Countries’ industrial competitiveness will increasingly be defined by the access they offer to affordable and reliable renewable energy. For companies, it’s increasingly becoming a factor in where they choose to base their operations, because they need renewable power to meet their own emissions reduction targets. This makes the economic case for G7 nations to stop subsidizing fossil fuels even clearer.
We urge G7 leaders, through bold leadership from the Japanese Presidency, to send a strong signal that they are fully committed to accelerating the phase out of fossil fuels by stopping fossil fuel subsidies and aligning public finance with this ambition. This will spur investors and companies to rapidly scale up investment into clean energy solutions, and transform communities and economies around the world.
It’s time to put public finance into clean energy at scale.